Adam Smith There is a natural progression occurring in human society: • Hunters and Gatherers • Agricultural based societies (Feudalism) • Industrialization • Market Based Systems • Karl Marx would add that another progression would come in the form of government ownership of the means of production for the benefit of society (Socialism/Communism)
The Wealth of Nations (1776) • Against the mercantilist policies of the past • Favored free markets to allocate resources • Due to our survival mechanism, he felt human nature can be viewed as selfish • Smith believed this “selfishness” acted as an invisible hand in the marketplace leading to benefits for society overall
Theory of Moral Sentiment (1759) • In his first book, Smith maintained we are more than just selfish creatures out for ourselves. This is often overlooked by people who use his ideas of free markets to push for NOGovernment involvement in business. This is not his belief! “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
Division of Labor: The Pin Factory • Smith used the example of a pin factory to describe his division of labor idea. • He observed a factory in which ten men could each produce ten pins per day for a total production of 100 pins per day • When each specialized in one duty however, the production went up to over 4800 pins per day!! (one man cuts the wire, one grinds it, one points it, one puts the head on, one packages, one stokes the fire, etc.) • This was good for everyone from the owner to the employees and the final consumers.
The other side of the division of labor • Due to the specialization of each worker, the jobs become monotonous. In many situations the need of independent craftsmen decreases. • Skilled labor is replaced by machines and men are supplanted by women and children in many factories leading to unemployment of many men. • One example is the making of guns. With mass production and interchangeable parts, many gunsmiths are no longer needed. Guns can be made for much less money and sold for a lower price due to factories. More guns and unemployed men is always trouble!
Questions • How are resources allocated in a capitalist society? • Who wins and who loses in a capitalist society and why? • Although the United States is a capitalist society, do you think we will ever move closer towards socialism as Marx claimed? Why?